Going to college has always been a considerable financial investment, but the resulting benefits are considerable too, with college graduates enjoying higher salaries, the pick of the best jobs and greater job security.
But this beneficial outcome is by no means guaranteed, even for the best performing students. Data shows that even for someone who works really hard and achieves the best possible grades, if they happen to graduate in a year when the economic climate is against them, they will not only find it hard to land their desired job, they will also be adversely affected financially for the rest of their working lives. The economy will eventually recover, but their starting salaries will not.
It may be hard to see, but the state of the economy when someone graduates does more to determine their lifetime earnings than anything they actually do in college. What subject they studied or who taught them all pale in significance compared to what is going on in the outside world at the time they embark on their career. Generally, it all works out fine, which is why going to college is such a reliable financial investment. But for one year of every 10, students graduate into a down economy. If, for example, you had started college in 2005, your junior year, Apple would release the first iPhone and unlock an incredible amount of economic potential. But your senior year, Lehman Brothers goes bust, and the job market you graduate into is in crisis. Those two events had more influence on your likely earnings—and you had no control over either.
The state of the economy when someone graduates does more to determine their lifetime earnings than anything they actually do in college.”
It is a bit like spinning a roulette wheel where nine of the 10 spaces are winners. If someone spins the wheel and lands on the bad space, then through no fault of their own, they will feel the impact of this for the rest of their lives.
Of course, if someone has enough money, they can simply double down and hide from the economy for a couple of years by going to law, business or grad school and hope to emerge in a different spot in the economic cycle.
But if you are a first-generation college student, from an underrepresented minority group or simply come from a poor background, you may not have that option. Even in good times, it takes an average of 21 years to pay back a student loan. If you start off in a dud year, you could still be paying off that loan long after your children have asked you to cosign on theirs.
Fortunately, there is now a solution. An innovative product from Degree Insurance protects against the risk of not getting that well-paying job by guaranteeing students’ incomes for the first five years after they graduate. When a student goes to college, they are making an investment in their future—and now they can ensure that the investment pays off. If a student doesn’t earn what they were predicted to in that first five-year period, they are reimbursed for the shortfall.
There is an added benefit to this kind of insurance too: It motivates people to persist all the way to graduation. It is a sad, under-reported fact that around 50 percent of college students drop out before graduating, often because they don’t think college will pay off. But by guaranteeing the financial outcome when they leave, Degree Insurance gives students the confidence to finish their courses.
It also provides a new way of thinking about how donors can give back and help the next generation have a college education. The traditional way of doing this is through scholarships. But that only gets students in the door; it does precious little to encourage them to stay all the way to completion. Insuring the outcome, on the other hand, can make that donor’s money go a lot further because improving students’ confidence in their post-graduate outcomes has a far bigger impact. When a donor gives a million dollars to a scholarship fund, it is intended to help those 40 or so recipient families improve their lot in life. But if those students drop out a year or two later, it fails. Instead, for the same investment a donor could guarantee the futures of 400 students. The impact is not only an order of magnitude greater, it actually achieves higher college degree attainment in the way that comparable scholarship dollars cannot.
In sum, while paying for some education for some students might give them a spin of the wheel and a shot at a better future, insuring their post-graduate salary removes the uncertainty and leads to better, more confident outcomes and is a force multiplier on donor dollars.
Wade Eyerly is cofounder and CEO of Degree Insurance. He previously founded Surf Air, the popular all-you-can-fly subscription airline.
Dennis Murashko is cofounder and president of Degree Insurance. He previously served as general counsel and senior advisor in the Office of Illinois Governor.
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